Contracts (Themis) - III. ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES
A. DEFINITIONS
"Assignment" is the transfer of rights under a contract, and "delegation" is the transfer of duties and obligations under a contract.
C. DELEGATION OF DUTIES
1. IN GENERAL 2. NOVATION 3. EFFECT OF DELEGATION OF PERFORMANCE UNDER THE UCC
C. 2. NOVATION
A novation is the substitution of a new contract for an old one, where the original obligor is released from his promises under the original agreement. A novation may be express or implied after delegation if (i) the original obligor repudiates liability to the original promise, and (ii) the obligee subsequently accepts performance of the original agreement from the delegatee, without reserving rights against the obligor.
B. ASSIGNMENT OF RIGHTS
Almost all contract rights can be assigned. Partial assignments are permissible, as is the assignment of future or unearned rights.
B. 3. RIGHTS OF THE ASSIGNEE
An assignee takes all of the rights of the assignor as the contract stands at the time of the assignment but takes subject to any defenses that could be raised against the assignor. The rights of the assignee are subject to set-off if the transaction giving rise to the set-off occurred prior to the time the obligor was given notice of the assignment. The assignee is also subject to any modification of the contract made prior to the time the obligor obtained notice of the assignment. Thus, payment by the obligor to the assignor can be raised as a defense, provided the payment was made before the obligor had notice of the assignment. A subsequent assignment of the same right(s) revokes any prior revocable assignment. If the first assignment was an irrevocable assignment, the first assignee will have priority over the second assignee, unless the second assignee is a bona fide purchaser for value without notice of the first assignment, in which case, the assignee who obtains payment from the obligor or judgment first will have priority. If the second assignee knows about a prior assignment, he is estopped from asserting claim over the first assignee even if he would have otherwise prevailed.
B. 1. WHEN DISALLOWED
Assignments are not allowed when doing so materially increases the duty or risk of the obligor or materially reduces the obligor's chance of obtaining performance. Generally, prohibitions against assignment in the contract are strictly construed, and the assignment is permissible. Even if validly prohibited by the contract, the parties retain the power to assign, and the only consequence is that an assignment operates as a breach of the contract.
C. 1. IN GENERAL
Generally, obligations under a contract can be delegated, unless the other party to the contract has a substantial interest in having the delegating individual perform (for example, in a personal services contract involving taste or a special skill) or when delegation is prohibited in the contract. When obligations are delegated, the delegator is not released from liability, and recovery can be had against the delegator if the delegatee does not perform.
B. 2. REQUIREMENTS
No formalities are needed for an assignment, but there must be a present intent to transfer the right immediately. No consideration is needed, but the lack of consideration would affect revocability of the assignment. If an assignment is for consideration, it is irrevocable. If no consideration supports the assignment (a gratuitous assignment), it will generally be revocable, unless the obligor has already performed or promissory estoppel applies. A gratuitous assignment will be automatically revoked upon the death or bankruptcy of the assignor.
C. 3. EFFECT OF DELEGATION OF PERFORMANCE UNDER THE UCC
Under UCC § 2-210(5), any delegation of performance under a contract for the sale of goods may be treated by the other party as creating reasonable grounds for insecurity. The other party may, without prejudice to her rights against the delegator, demand assurances from the delegatee (pursuant to UCC § 2-609, discussed at VII.B.2.-3., infra).
